Why Overstock.com Stock Rallied as Much as 12.5% on Thursday

(The Motley Fool) – What happened
Shares of online retailer Overstock.com (NASDAQ:OSTK) rallied as much as 12.5% as the trading day began Thursday. Although the stock had pulled back some of those gains by around noon EDT today, it was still up a hefty 10%. But compared with the over 1,000% gain the stock has witnessed so far in 2020, even a 10% advance seems somewhat tiny.

So what
The big story with Overstock.com can be found in the last three letters of its name. With COVID-19 leading to the forced closure of nonessential businesses and social-distancing efforts, more and more shopping is being done online. That’s been a huge boon for Overstock.com, which saw revenue increase more than 100% year over year in the second quarter. Earnings improved from a loss of $0.69 per share in the second quarter of 2019 to a profit of $0.85 in the same period of 2020. No wonder investors have been so upbeat here.

Cheering that huge run have been Wall Street analysts, as you might expect. The price bump today was likely driven by Wedbush’s Ygal Arounian, who reiterated an outperform rating and placed Overstock.com on the company’s Best Ideas list. Arounian has a $92 price target (Overstock.com currently trades at around $80) and expects the stock’s massive 2020 rally to keep going.

Now what
There’s a huge amount of good news priced into any stock that goes up 1,000% in roughly nine months. Conservative long-term investors should probably be cautious about Wall Street’s enthusiasm for Overstock.com. The business is definitely benefiting from the shift toward online shopping, but just how much better that can get isn’t clear, and the trend could change quickly should a COVID-19 vaccine arrive.

It’s also worth noting that Overstock.com itself has taken this opportunity to sell 1.7 million shares, suggesting that the valuation is, perhaps, stretched at current levels. Wedbush, for reference, helped Overstock.com with that August stock offering.

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